Accounting for Click Fraud in PPC Advertising ROI

What’s an AdWords advertiser to do? Your pay-per-click (PPC) advertising is profitable, but then you find out that 35% of the clicks you paid for were fraudulent. Does your PPC advertising campaign still make good business sense?

After analyzing where and when each click came from, auditing firm ClickFacts Inc. estimated that 35 percent of the referrals that Radiator paid Google for stemmed from bogus traffic. Likewise, 17 percent of the leads that came from Yahoo search results were illegitimate.

“They are reporting some very high fraud rates to us,” said John Thys, director of Internet marketing for 1-800-Radiator, the Benicia, Calif., distributor that owns Radiator.com. Thys said his firm will present the report to Google and Yahoo next week and request a refund for the invalid clicks.

And that’s just an estimate!

I got reamed the other day by the search advertising community for suggesting that click fraud might make advertisers lose faith in search advertising. My big mistake was not differentiating “search” ads from “affiliate” ads, i.e. the Google AdWord ads that appear on Google’s search result pages vs. the ads that appear on websites that participate in the AdSense program.

All evidence points to the latter as the real problem (from the Post article):

Analysts say affiliate spam is more common and really took off after Google launched its AdSense network, which distributes paid links to thousands of non-search sites. They get a share of Google’s ad revenue based on clicks, giving unscrupulous publishers an incentive to inflate their clicks.

Yahoo started a similar ad network last summer but limits participation to invited sites to maintain quality and reduce the risk of ad spam, Paez said.

Over the past 18 months, cottage industries have popped up on both sides of this click-and-mouse game.

For $29 or so, anyone can buy fake traffic generator software such as Smart HitBot, Fake Hits Genie and Fakezilla, programs that can send bogus traffic to any Web page or ad.

The real question is whether advertisers who are profiting from PPC advertising by their own calculations will continue to dump money into PPC ads knowing that 1/3 or more of that money might be going to thieves. (The ignorance of unaccountable traditional advertising almost starts to look blissful.)

The most obvious risk is that Google AdWords advertisers (to use Google as the touchstone example) will start pulling dollars from the Google Network and just run their keyword campaigns through Google search.

But the big risk is that advertisers start to focus more on the click fraud math than the ROI math (not that you can really separate the two).

This gives a whole new spin to the old Wanamaker adage, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

What if you suddenly found out PRECISELY how much of your advertising is wasted, AND you found out that it’s wasted due not to inefficiency but FRAUD?

As I said before, when you live by the ROI sword, you can die by the ROI sword.